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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
GameChanger
‘Manufacturing’ 100 mn new jobs? India’s latest manufacturing policy aims to
“(1) increase the sectoral share of manufacturing in GDP to at least 25% by 2022,
(2) increase the rate of job creation to create 100 million additional jobs by 2022, and
(3) enhance global competitiveness, domestic value addition, technological depth and
environmental sustainability of growth.” The intervention, though timely, is not bold
(compared even to China’s current manufacturing output) and challenges remain in
execution of skill development, rural-urban transition, land acquisition and labor laws.
25% of GDP: Worthy ambition, uphill task
For manufacturing to become 25% of India’s GDP by FY2022 from the current 16%, it will need
to grow at a real CAGR of13.0% (to US$0.75 tn) over the next decade (assuming a real CAGR of
8.0% for the economy as a whole (to US$3 tn)). Such disproportionate growth will possibly come
at the expense of the services sector (and naturally slow-growing agricultural sector) and will
require significant hand-holding and facilitation as this model of growth contrasts heavily with the
experience of the last decade, where manufacturing grew at a real 8.0% per annum and services
at 9.3%. We note that the CY2012 output of China’s manufacturing sector is US$2.4 tn.
100 mn jobs: doubling manufacturing’s employment base
The latest NSSO survey (66th round) indicated that out of India’s 485 mn workforce, 104 mn are
employed in manufacturing, up from 88 mn five years ago (we note that 60% of manufacturing
jobs are in rural India). Our research suggests that 11-13 mn new people will look for employment
opportunities every year for the next 10 years: since services will continue to create employment
opportunities (around 3-4 mn every year), the 100 mn people newly required in manufacturing will
also come in from agriculture (which currently employs 256 mn people), underscoring the need for
rural skill development and in managing the transition.
NIMZs: land acquisition remains the key
The National Investment and Manufacturing Zones (NIMZs) envisaged in the policy are expected to
be developed in “waste infertile land not suitable for cultivation; not in the vicinity of any
ecologically fragile area and with reasonable access to basic resources.” Such constraints typically
make it harder to find land or the cost of creating the infrastructure to reach and exploit this land
becomes large. The minimum size, according to press reports, will need to be 5,000 hectares (50
sq km), significantly larger than the area requirement in setting up an SEZ.
Exemption from labor laws needs more clarity
The press release states that “it is envisaged to ensure compliance of labor and environmental laws
while introducing procedural simplifications and rationalization so that the regulatory burden on
industry is reduced. The interventions proposed are generally sector neutral, location neutral and
technology neutral”. This wordy write-up currently provides limited clarity on how the policy seeks
to deal with the issue of compliance with the ‘harsh’ labor laws in the country, which have led to
increased ‘casualisation’ (hiring of temporary workforce).
Services and agriculture: do things add up to 100%?
The policy, if successfully implemented, will move people from agriculture to manufacturing even
as it expects manufacturing to capture the growth from services sector. To expect services to grow
at a rate lower than manufacturing is somewhat counter-intuitive as the services sector typically
benefits from the activity of manufacturing. Internationally, countries that have seen a surge in
manufacturing as a percentage of its value add have seen manufacturing grow by taking share
and people from agriculture: India’s experiment will be markedly different.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
GameChanger
‘Manufacturing’ 100 mn new jobs? India’s latest manufacturing policy aims to
“(1) increase the sectoral share of manufacturing in GDP to at least 25% by 2022,
(2) increase the rate of job creation to create 100 million additional jobs by 2022, and
(3) enhance global competitiveness, domestic value addition, technological depth and
environmental sustainability of growth.” The intervention, though timely, is not bold
(compared even to China’s current manufacturing output) and challenges remain in
execution of skill development, rural-urban transition, land acquisition and labor laws.
25% of GDP: Worthy ambition, uphill task
For manufacturing to become 25% of India’s GDP by FY2022 from the current 16%, it will need
to grow at a real CAGR of13.0% (to US$0.75 tn) over the next decade (assuming a real CAGR of
8.0% for the economy as a whole (to US$3 tn)). Such disproportionate growth will possibly come
at the expense of the services sector (and naturally slow-growing agricultural sector) and will
require significant hand-holding and facilitation as this model of growth contrasts heavily with the
experience of the last decade, where manufacturing grew at a real 8.0% per annum and services
at 9.3%. We note that the CY2012 output of China’s manufacturing sector is US$2.4 tn.
100 mn jobs: doubling manufacturing’s employment base
The latest NSSO survey (66th round) indicated that out of India’s 485 mn workforce, 104 mn are
employed in manufacturing, up from 88 mn five years ago (we note that 60% of manufacturing
jobs are in rural India). Our research suggests that 11-13 mn new people will look for employment
opportunities every year for the next 10 years: since services will continue to create employment
opportunities (around 3-4 mn every year), the 100 mn people newly required in manufacturing will
also come in from agriculture (which currently employs 256 mn people), underscoring the need for
rural skill development and in managing the transition.
NIMZs: land acquisition remains the key
The National Investment and Manufacturing Zones (NIMZs) envisaged in the policy are expected to
be developed in “waste infertile land not suitable for cultivation; not in the vicinity of any
ecologically fragile area and with reasonable access to basic resources.” Such constraints typically
make it harder to find land or the cost of creating the infrastructure to reach and exploit this land
becomes large. The minimum size, according to press reports, will need to be 5,000 hectares (50
sq km), significantly larger than the area requirement in setting up an SEZ.
Exemption from labor laws needs more clarity
The press release states that “it is envisaged to ensure compliance of labor and environmental laws
while introducing procedural simplifications and rationalization so that the regulatory burden on
industry is reduced. The interventions proposed are generally sector neutral, location neutral and
technology neutral”. This wordy write-up currently provides limited clarity on how the policy seeks
to deal with the issue of compliance with the ‘harsh’ labor laws in the country, which have led to
increased ‘casualisation’ (hiring of temporary workforce).
Services and agriculture: do things add up to 100%?
The policy, if successfully implemented, will move people from agriculture to manufacturing even
as it expects manufacturing to capture the growth from services sector. To expect services to grow
at a rate lower than manufacturing is somewhat counter-intuitive as the services sector typically
benefits from the activity of manufacturing. Internationally, countries that have seen a surge in
manufacturing as a percentage of its value add have seen manufacturing grow by taking share
and people from agriculture: India’s experiment will be markedly different.
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